Bankruptcy cases of enterprises are not uncommon in the courts of the Republic of Kazakhstan. The basis for bankruptcy of an enterprise, as stated in the law, is the insolvency of the debtor. However, when initiating a bankruptcy case, the question may arise about what to do with concluded but not yet executed contracts and obligations?
Is bankruptcy of an organization a reason for refusing to fulfill a contract?
According to the general provisions set out in Article 377 of the Civil Code of the Republic of Kazakhsta , the obligation is terminated by the liquidation of a legal entity (debtor or creditor).
From the meaning of the cited norm, one can conclude that the very initiation of a bankruptcy case by the court against the debtor is not a basis for the other party (counterparty) to refuse to perform the contract. This is also directly stated in paragraph 1 of Article 8 of the Law of the Republic of Kazakhstan "On Rehabilitation and Bankruptcy . According to this norm of the law, the initiation of a bankruptcy case against the debtor is not a basis for a unilateral refusal to perform the contract at the initiative of the counterparty and does not entail the termination of this contract.
Thus, the debtor's counterparty, despite the initiation of bankruptcy proceedings by the court, has no right to refuse the concluded agreement and is obliged to fulfill it properly. At the same time, the agreement concluded between the parties on refusal to fulfill the agreement and on its termination, due to the initiation of bankruptcy proceedings, is invalid.
In what cases is a bankruptcy trustee obliged to refuse transactions concluded by the debtor?
In accordance with paragraph 3 of Article 8 of the Law "On Rehabilitation and Bankruptcy", the bankruptcy trustee, on the basis of the decision of the creditors' committee, is obliged to:
- change, terminate, refuse to perform the contract or
- challenge the validity of the agreement concluded by the debtor prior to the initiation of bankruptcy proceedings and demand the return of the property transferred by the debtor.
Thus, in addition to the grounds specified in Article 7 of the Law "On Rehabilitation and Bankruptcy", the bankruptcy trustee is obliged to refuse to perform the agreement (change, terminate or challenge it) if there is a corresponding decision of the creditors' committee.
Is it possible to offset claims during the bankruptcy proceedings?
Set-off of claims, in accordance with paragraph 1 of Article 370 of the Civil Code, is one of the methods of fulfilling the debtor’s obligation under any transaction.
Clause 4 of Article 8 of the Law "On Rehabilitation and Bankruptcy" states that from the moment of initiation of bankruptcy proceedings until the entry into force of a court ruling on termination of bankruptcy proceedings or a court decision on recognizing the debtor as bankrupt, offsetting of mutual claims between the debtor and his creditors is not permitted.
In this regard, the Law "On Rehabilitation and Bankruptcy" directly prohibits both the debtor and the creditor from taking actions aimed at fulfilling obligations by offsetting. In the event of a violation of this prohibition, the bankruptcy trustee has the right to file a claim in court and challenge the actions on such offsetting.